Largest industrial investment in country's history

Largest industrial investment in country's history

A group of investors operating in the Estonian timber industry are planning to set up a wood refining plant in Estonia worth EUR one billion by 2022. The preparations for building the plant are to begin in early 2017 and might take up to three years. To this end, the investors have set up a company, Est-For, with Aadu Poll and Margus Kohava as the board members. According to Est-For, the company should create 200 new jobs as well as additional jobs for serving the factory which means jobs for 500-700 people. The production capacity of the plant would be 700,000 tons and timber that is consumed as raw material would be 3 million cubic meters a year. The factory, equipped with modern technologies to keep environmental impact to the minimum, will produce cellulose, hemicellulose and lignin which could be used to produce different bioproducts. The exact location of the plant is not known yet and its area would be around 100 hectares. According to the entrepreneurs, the new factory should have a positive impact on Estonia's exports and economic growth. The direct value added created by the factory would be up to EUR 350 million a year, which amounts to 1.4-1.5% of Estonia's gross domestic product. The factory would export its own produce worth EUR 320-420 million a year, which would increase Estonia's exports by EUR 250-350 million annually. The export value of Estonian products would grow 2-3%. Although there are large timber supplies in Estonia and the Baltic countries as a whole, at present most of pulpwood and wood chips are exported from Estonia without added value, Est-For said. The investment is planned around EUR one billion, which is the biggest industrial investment in the history of Estonia. The investment decisions are to be made in 2019, and the plan is to bring in a stratregic investor for the project as well as foreign banks. The authors of the project are prepared to finance it until the completion of the research and analysis phase. The company has estimated that 104,000 households of forest owners in Estonia would benefit from supplying raw materials to the new plant, and the Estonian State Forest Management Center (RMK) also stands to gain from the project. It is planned that the plant would generate by 25% more renewable energy than it would consume. Est-For was established on October 3, 2016, and its owners include forest and wood processing group AS Lemeks, Caspar Re OU, a holding enterprise belonging to businessman Peeter Mand, Ivard OU, Kaamos Group OU, OU Combiwood and OU Tristafan.

Investments in startups soar

Estonian startups raised a record-breaking EUR 102.5 million in investments during 2016, according to the figures published by Startup Estonia. There are at present a little over 400 startups in Estonia and roughly 90% of them are in the very early or early stages of development. Most of the Estonian startups work in the IT sector. Taxes paid by startups have increased from EUR 21 million in 2015 to EUR 28 million in 2016. The number of people employed by Estonian startups has also increased steeply – by 1,000 compared with the end of 2015 to 3,500 at the end of 2016. Three in four of the people employed by Estonian startups are employed in Estonia but the rest work outside the country. The biggest of the startups in terms of taxes and the number of employees is Transferwise (600 employees). Pipedrive employs 240 people, Adcash 200, Zeroturnaround 170 and Creative Mobile has 100 employees. Estonian startups have raised altogether EUR 370 million during the last 10 years. 2016 turned out to be a record year with EUR 102.5 million attracted by Estonian startups. For example, Transferwise raised EUR 48 million in 2015 and EUR 23.5 million in 2016. Starship Technologies raised EUR 16.5 million euros last yeear, Pipedrive attracted EUR 16 milion and Monese EUR 9.4 million.

Livonia Partners, the pan-Baltic private equity firm, at the end of 2016 signed an agreement to acquire Estonia's Hortes which has a large home and garden products center just outside Tallinn. It is planned to open the second store near Tallinn and then to expand to the neighboring countries. The Hortes investment is the second for Livonia Partners Fund I, whose strategy is to invest in medium-sized companies in the Baltics that are well-managed and growing. With its first investment, in February 2016, the fund acquired the sauna and thermo-treated wood products manufacturer Ha Serv in Estonia. Trigon Gardening which operates Hortes was established in 2004 by Estonia's Trigon Capital together with a Finnish investor. Now it runs the largest home and garden products centre in Estonia. Founded in August 2015, Livonia Partners is a private equity investment firm based in the Baltics, which currently manages EUR 83 million as part of the Livonia Partners Fund I and the Livonia Partners EIF Co-Investment Fund. The funds' investors are domestic and international institutional investors.

Estonian businesses more willing to make investments

Latvian businessmen are more reluctant to make investments than Estonian companies, said Ints Krasts, a board member of Latvia's SEB Banka. According to SEB Baltic CFO Outlook, only one-third of chief financial officers (CFOs) of the Latvian companies participating in the survey would use cash surplus for investment as opposed to 54% in Estonia. The survey showed that 30 percent of the companies in Latvia would rather use cash surplus to repay loans while only 15% of the Estonian companies would do that. Large companies have become more reluctant to draw on the working capital lines of credit, currently using about a half of the available amount compared to 60-75% a year or two ago. Large companies now have more own funds and the amounts of corporate deposits and the money kept in the corporate accounts are growing.

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